What could a firm do if it wanted to know whether the demand for its product was elastic,unit-elastic,or inelastic?
A) Survey competitors and ask them what they think demand elasticity is for the product.
B) Talk to its customers.
C) Change price a little bit and observe what happens to total revenue.
D) Don't do anything as there is no way to find an elasticity value.

Question

Quizplus · Accepted Answer

Changing the price a little bit and observing what happens to total revenue is the best way to determine the elasticity of demand for a product. If the change in price results in a large change in quantity demanded and a small change in total revenue, the demand for the product is elastic. If the change in price results in a small change in quantity demanded and a large change in total revenue, the demand for the product is inelastic. If the change in price results in an equal change in both quantity demanded and total revenue, the demand for the product is unit-elastic. Surveys with competitors or talking to customers may provide some information about demand elasticity, but they are not as reliable as observing the change in price and quantity demanded. Option D is incorrect as there are ways to calculate the elasticity of demand for a product.

What Could a Firm Do If It Wanted to Know